Take a moment and imagine your favourite actor putting on an expression of absolute shock when playing a character.
Your visualisation could soon be a real-life event as these actors and celebrities evaluate the UAE corporate tax implications on the entertainment industry. The tax issue has piqued the interest of the entertainment and sports industries alike.
The tax treaties between UAE and other countries say, India or the UK, determine the taxability of entertainers, resident in such other countries, but performing in the UAE. The income derived by these overseas-based individuals - by exercising the activities of an entertainer in the UAE - are taxable in the UAE.
Such income remains taxable in the UAE even if it accrues, not to the entertainer, but to another person - e.g., the overseas company employing the entertainer. As tax treaties grant the right to impose tax to the UAE, we should take a look at the scope of the domestic tax laws.
An individual conducting business activities – to be specified in a cabinet decision - in the UAE will be taxable under the UAE corporate tax. Even though there is no personal taxation in the UAE, corporate tax is still applicable on specified business activities conducted by an individual here.
The taxability is independent of individual’s nationality or residency in the UAE.
Scope of an entertainer
The scope of being an entertainer is not restricted to movie actors alone. While the tax treaties do not contain any exhaustive list of entertainers, it cover individuals working as a theatre, motion picture, radio or television artiste, or as a musician.
Any individual practicing a similar profession in the UAE could also find themselves impacted by the UAE tax.
A question may arise if a one-off performance in the UAE could attract corporate tax if the entertainer is not regularly present in the UAE. This has become a moot point and the issue has already been addressed under the tax laws. The questions on the scope of the activity – should it be for public at large or a private movie recording (yet to be released to public) - has already been settled under European tax laws.
However, one has to examine if an entertainer earns income to appear as a brand ambassador, to attend the events or to do a photo shoot, in the UAE, would still be covered under the corporate tax.
The next time a movie sequence gets recorded, or a singer performs at a concert, in the UAE, the tax implications must be considered even if the payments are received in the home country.
Tax and sports
The sports industry is not immune from the corporate tax either. The aforesaid tax position, as applicable on entertainers, would equally apply on sportsmen exercising the activities of a sportsman in the UAE.
Back in 2020, we discussed the VAT implications on the cricketers playing in the UAE for the respective private teams of the Indian Premier League (IPL). Recently, two IPL players were imposed a fine of their 100 per cent match fee. The calculation of the fine reflected that the players receive contractual payments for playing for the respective IPL team.
The corporate tax could become an additional compliance point for the sports industry in the future.
Corporate tax vs VAT
The forthcoming corporate tax is distinct from VAT, which provide an alternative of reverse charge mechanism (RCM) on the UAE payer to settle the VAT liabilities of an overseas entertainer.
The corporate tax laws do not have any direct alternative for such individuals. Corporate tax laws have a concept of withholding tax to be deducted by a UAE payer. However, withholding tax does not appear to be an alternative to the obligations of a taxpayer.
Further, withholding taxes may not apply to individuals conducting business activities in the UAE as such individuals are not treated as ‘non-resident’ under the CT laws.
International tax policies
The taxation of entertainers/sportsmen is a global issue. Different countries have formulated comprehensive domestic policies to address the issue. To illustrate, in India, the payments for such activities is subject to a withholding tax of 20 per cent and the entertainer/sportsmen is not required to obtain separate tax registration.
Further, specific exemptions have also been provided to non-residents for shooting of movies in India
The UAE corporate tax currently does not provide any exemptions to the entertainment or the sports industry. With UAE being a growing hub for both industries, the tax policy is expected to address this issue comprehensively.
We might find the answer in the cabinet decision on business activities undertaken by an individual. The entire entertainment industry should take a note of the UAE tax implications for activities performed in the UAE.